Principal, Canright Communications

Read a previous BritView article from Tricia Martinez, Founder and CEO of mSwift, on the company’s first week in the 2016 Barclays Accelerator Powered by Techstars in London

London Calling: Building Global FinTech IntersectionsLondon Calling: Building Global FinTech Intersections

Financial Technology (FinTech) has been one of the hottest areas of global venture investment for the last two years and shows no signs of stopping, despite highly publicized problems. This year, Chicago startups and investors are starting to forge ties in London, the global center of FinTech development.

FinTech is a shorthand for technologies, ranging from mobile banking to digital securities clearing, that are bringing about the digital transformation of banking and finance. A recent Accenture survey, for instance, puts global investment growth at $5.3 billion, a 67% increase over last year. The report puts 2015 total investment at just over $22 billion.

As financial services and banking converge with internetworked, mobile, and massively databased systems, FinTech has become a wildly explosive area in financial services. The tools developed by innovative FinTech firms are empowering individuals to gain greater control over their financial destinies and enabling smaller, incumbent financial institutions to compete with large global institutions and technology firms.

London is generally acknowledged as the global center of FinTech investment and innovation, with significant support from both the British and London governments. Chicago, however, lags, with its broadly based economy and technology interests.

Still, as a global trading center and home to critical technologies in trading, exchanges, and ecommerce, Chicago firms are starting to embrace and find success in FinTech. They are starting to reach out to London as well.

“We’re committed to building strong ties between Chicago and London FinTech firms and investors,” says Jason Henrichs, managing partner at the Kinetic Group and founder of FinTEx Chicago, a nonprofit founded to expand Chicago’s role in FinTech and innovation. “We partner with UK Trade and Investment, Innovate Finance, Startup Bootcamp, and the Barclays accelerator.”

I participated as a mentor when London-based Startup Bootcamp had its FinTech day last January at CME Venture’s Center for Innovation. The experience confirmed a number of my beliefs about FinTech, namely that:

  • Firms focused on making back-office functions are likely to succeed first and fastest,
  • Consumer-focused startups that embody the FinTech ideal have a tough row to hoe, and
  • Pure cryptofinance targeted to small-businesses or consumers at any scale is neigh impossible for the market to understand and buy at this point in time.

Payments, lending, and capital markets lead in FinTech investments, according to a McKinsey & Company report. Here are the FinTech market trends I’m tracking for 2016:

Bank Cooperation: From good idea to emerging trend. Banks increasingly are partnering with startups. Banks seek new technologies while startups need customers and data to scale.

Market Development: From VC investment to consumer use cases. Retail FinTech focuses on the consumer while Business FinTech focuses on back-office systems.

Payments: Mobile adoption, “faster” development. Mobile payments increasingly are gaining traction as applications become easier to use and more prevalent. Meanwhile, the U.S. Federal Reserve is guiding development of a “faster payments” system in the United States.

Cryptofinance: From bitcoin to blockchain to smart contracts. Tests of distributed ledger technologies, which track transactions in a public and secure ledger, have been announced by nearly all global financial institutions, with the backing of large technology firms. It’s the hottest area of investment so far this year.

Regulation: The Empire strikes. Federal regulators in the U.S., U.K., and Australia in particular began in the first quarter of 2016 to develop regulatory frameworks for the largely unregulated FinTech businesses.

Indeed, regulation may be a key area in which Chicago firms make connections with London. It’s much easier to start a FinTech company in London, where there’s a single common regulatory scheme that’s transportable across other jurisdictions in Europe. “As an American, I am concerned about the ability of U.S. companies to compete when regulatory structure is so difficult,” Richard Nieman, who heads regulatory and government affairs for said peer-to-peer lender Lending Club. He spoke on a panel at last October’s Money20/20 conference in Las Vegas.

“London’s welcoming regulatory environment has made a preferred market for competitive FinTech ventures to test their propositions,” said Julian Skan, a managing director in Accenture’s Financial Services group who oversees the FinTech Innovation Lab London.

A slow-down in investment may occur after recent and highly publicized allegations of misconduct at peer-to-peer lender Lending Club, based in San Francisco, and the failure of mobile payments startup Powa Technologies, London. Yet the inevitable transition of financial services and money itself to the internet, and the emerging cooperation between banks and startups are good signs. The FinTech sector is worth watching, and I hope it helps forge stronger links between Chicago and London.